Austerity vs. growth

The tax evasion/corrupt government thing has likely become a self fulfilling prophecy at this point...people evaded taxes for years, and now they can justify it with "Look, the government wasted all our money anyway, I'm certainly not trusting them with my taxes now"

Economist Paul Romer suggested that the spiral might be broken by a benevolent external authority. In this case, competent EU/IMF bureaucrats would have to play that role. Unfortunately most people (including importantly, the Greeks) believe the outsiders are neither benevolent, nor competent. Even here on the SB the predominant narrative is that the troika is only securing the interests of the creditors (and the creditors' creditors).

I think the entire worlds needs to buy into the idea that just because they did everything leaders and society told them to do doesn't mean it's going to work out or that the government owes them their own American dream.

It would seem that there are many out there that feel austerity isn't going to encourage a financial turnaround...it's not been fully established that austerity is the best strategy.|Have there been any historical examples of successful austerity that turned countries around within 3-5 yearS?

I don't think it is established at all that austerity can work. All the evidence I have seen is that austerity is counter-productive and the only remedy for the problem is structural reform and economic growth. I can't see much of the latter happening any time soon in Greece, and the former may be all the more difficult if attempted at a time of national crisis with riots in the streets.

It would seem that there are many out there that feel austerity isn't going to encourage a financial turnaround...it's not been fully established that austerity is the best strategy.|Have there been any historical examples of successful austerity that turned countries around within 3-5 yearS?

I don't think it is established at all that austerity can work. All the evidence I have seen is that austerity is counter-productive and the only remedy for the problem is structural reform and economic growth. I can't see much of the latter happening any time soon in Greece, and the former may be all the more difficult if attempted at a time of national crisis with riots in the streets.

AFAIK, it's rather well-established that austerity doesn't work at all.

From Krugman's column. Wonder if it's true that there's no economic rationale for austerity, that it was simply about "moralizing" and passing judgement and punishing profligacy rather than choosing the fiscal and economic policy on their merits.

Quote:

For things didn’t have to be this bad. Greece would have been in deep trouble no matter what policy decisions were taken, and the same is true, to a lesser extent, of other nations around Europe’s periphery. But matters were made far worse than necessary by the way Europe’s leaders, and more broadly its policy elite, substituted moralizing for analysis, fantasies for the lessons of history.

Specifically, in early 2010 austerity economics — the insistence that governments should slash spending even in the face of high unemployment — became all the rage in European capitals. The doctrine asserted that the direct negative effects of spending cuts on employment would be offset by changes in “confidence,” that savage spending cuts would lead to a surge in consumer and business spending, while nations failing to make such cuts would see capital flight and soaring interest rates. If this sounds to you like something Herbert Hoover might have said, you’re right: It does and he did.

Now the results are in — and they’re exactly what three generations’ worth of economic analysis and all the lessons of history should have told you would happen. The confidence fairy has failed to show up: none of the countries slashing spending have seen the predicted private-sector surge. Instead, the depressing effects of fiscal austerity have been reinforced by falling private spending.

Well, you cant expect the Euro-commies to do smaller government well...

It's certainly weird to hear the GOP calling for slashing federal budgets in the US to placate the jerb creators while the dirty socialists are actually doing it, and watching it work miserably.

To clarify, though, the socialists have to cut off some or a lot of the patronage--gov't employment particularly. That isn't a big budget hit in the US. The GOP would cut anything that doesn't serve their own narrow party interests, the object being to forestall as long as possible the tax increases that are inevitable.

I'm not sure if this is the appropriate thread for this, but it seems to fit. Medicare cost growth is slowing. The primary source of all the US's budget projections of doom may not actually complicate the budget picture as much as expected. As Karl Smith says:

Quote:

Suppose that this trend were to continue and that per enrollee costs actually shrank as fraction of potential GDP. In that case the long term budget outlook is pretty good.

Now imagine that you withheld a payroll tax cut or food stamp relief or any other program on the basis of fear about long term budgets. Depending on your macro estimates somewhere between millions and hundreds of millions of people suffered for this.

What did you get in return for their suffering?

Absolutely nothing. Nothing. Nothing.

Every time you ask a real living person to suffer for some future goal you have to know that you are betting their well-being on your being right about the future.

How sure are you that you are right?

Austerity costs with probability one. Attempting to effect long term growth is always a gamble.

Does Greece have to repay the bailout money? It just hit me that I have no idea. I know they reduced their bond-debt by screwing over those who trusted their bonds, but will they have to pay back the billions in bail-out money too?

Does Greece have to repay the bailout money? It just hit me that I have no idea. I know they reduced their bond-debt by screwing over those who trusted their bonds, but will they have to pay back the billions in bail-out money too?

Does Greece have to repay the bailout money? It just hit me that I have no idea. I know they reduced their bond-debt by screwing over those who trusted their bonds, but will they have to pay back the billions in bail-out money too?

How will they ever recover if that's the case? Like, ever?

Yes Greece will have to repay the bailouts. They are loans.

So are they borrowing the money only to pay it back out immediately on their bond owings?

Short of a clean start, Greece is going to be the world's newest 3rd world country.

Found a Wiki article on the Latin American debt crisis in the '80s. From that:

Quote:

While the dangerous accumulation of foreign debt occurred over a number of years, the debt crisis began when the international capital markets became aware that Latin America would not be able to pay back its loans. This occurred in August 1982 when Mexico's Finance Minister, Jesus Silva-Herzog declared that Mexico would no longer be able to service its debt.[6] Mexico declared that it couldn't meet its payment due-dates, and announced unilaterally, a moratorium of 90 days; it also requested a renegotiation of payment periods and new loans in order to fulfill its prior obligations.[5]In the wake of Mexico's default, most commercial banks reduced significantly or halted new lending to Latin America. As much of Latin America's loans were short-term, a crisis ensued when their refinancing was refused. Billions of dollars of loans that previously would have been refinanced, were now due immediately.The banks had to somehow restructure the debts to avoid financial panic; this usually involved new loans with very strict conditions, as well as the requirement that the debtor countries accept the intervention of the International Monetary Fund (IMF).[5] There were several stages of strategies to slow and end the crisis. The IMF moved to restructure the payments and reduce consumption in debtor countries. Later it and the World Bank encouraged opened markets[7][8]. Finally, the US and the IMF pushed for debt relief, recognizing that countries would not be able to pay back in full the large sums they owed[9].

It really doesn't say how much was owed and how much was not paid back, how much was renegotiated.

You wonder if there's some precedent for how Greece and the other PIIGs might be handled but of course, we've learned that South America saw economic growth through natural resources exports, driven by the boom in demand in Asia.

I truly believe that those working to keep Greece in the EU with bailouts and austerity are either delusional or have their own horse in the race, i.e. ensuring bond holders get back as much as possible or something like that. There's no hope for them this way.

If Greece left the EU, would all Greek citizens all over Europe lost their right to residency and right to work? Would EU members working in Greece need to seek work visas?

Yes (although there are usually rules that after haing lived & worked in a country for x years, you can apply for permanent residency / citizenship, so a good number of them could probably stay on that basis).

I believe the monetary Union is a different group than the benefits you're addressing, so presumably they could withdraw from one but not the other.

AFAIK, currently there's no seperate exit mechanism for the monetary union, so the only way would be to leave the EU altogether (although this might be changed if/when a Greek exit should actually happen).

And austerity in a slump doesn’t just inflict vast suffering. There is growing evidence that it is self-defeating even in purely fiscal terms, as the combination of falling revenues due to a depressed economy and worsened long-term prospects actually reduces market confidence and makes the future debt burden harder to handle. You have to wonder how countries that are systematically denying a future to their young people — youth unemployment in Ireland, which used to be lower than in the United States, is now almost 30 percent, while it’s near 50 percent in Greece — are supposed to achieve enough growth to service their debt.

This was not what was supposed to happen. Two years ago, as many policy makers and pundits began calling for a pivot from stimulus to austerity, they promised big gains in return for the pain. “The idea that austerity measures could trigger stagnation is incorrect,” Jean-Claude Trichet, then the president of the European Central Bank, declared in June 2010. Instead, he insisted, fiscal discipline would inspire confidence, and this would lead to economic growth.

And every slight uptick in an austerity economy has been hailed as proof that the policy works. Irish austerity has been proclaimed a success story not once but twice, first in the summer of 2010, then again last fall; each time the supposed good news quickly evaporated.

Read this article. Took an amazing amount of perseverance, patience and line waiting to get a small business going. He refused to pay any bribes. Look how Greece rewarded him...with red tape. He barely got the business going. WTF is wrong with these people?

Three greek banks couldn't help him accept online payments, while PayPal had it set up in 10 minutes.

However, giving away coffee was illegal as well. Instead, the owner had to strike a deal with a bar across the street, whereby they make the coffee and the waitress spends all day shuttling between the bar and the bookstore/café. My friend also explained to me that books could not be purchased at the bookstore, as it was after 6 p.m. and it is illegal to sell books in Greece beyond that hour. I was in a bookstore/café that could neither sell books nor make coffee."

Here's the thing I don't get...if the economy is in shambles, and the government is cutting back spending, and the government machine is dependent on bribes to get stuff done, who the hell is enforcing all of these retarded laws?

Let's say they sell the coffee, or the book. Who is going to stop then? Wouldn't that individual have to go through the same process just to get them shut down?

In NJ, there's been a big cut of funding to municipalities. To make up for it, the Governor has pushed through a program of helping municipalities set up red light cameras. They target high traffic, very complex intersections, the kind tat you can easily get stuck in, or need to nose into in order to merge onto a road that is busy during rush hour. They also set them to snap a photo during a rolling stop, so you have to come to a complete stop, behind the crosswalk, before making a turn, a technically correct stop that no one does in low traffic conditions, or late at night.

So now, instead of a progressive tax increase, we have a regressive set of fines that don't contribute to public safety, but are used as a basis of maintaining the bureaucracy. The towns get the money, the governor claims he hasn't raised taxes, and the unions get to keep their membership rolls of uniformed employees. All through what I would consider shakedown of the citizens in a way taht is hidden from regular accounting of taxes.

In NJ, there's been a big cut of funding to municipalities. To make up for it, the Governor has pushed through a program of helping municipalities set up red light cameras. They target high traffic, very complex intersections, the kind tat you can easily get stuck in, or need to nose into in order to merge onto a road that is busy during rush hour. They also set them to snap a photo during a rolling stop, so you have to come to a complete stop, behind the crosswalk, before making a turn, a technically correct stop that no one does in low traffic conditions, or late at night.

So now, instead of a progressive tax increase, we have a regressive set of fines that don't contribute to public safety, but are used as a basis of maintaining the bureaucracy. The towns get the money, the governor claims he hasn't raised taxes, and the unions get to keep their membership rolls of uniformed employees. All through what I would consider shakedown of the citizens in a way taht is hidden from regular accounting of taxes.

To your specific point, aren't most red-light cameras being challenged as a person gets a ticket and not a car and unless they can prove who was driving it, they have to throw out the ticket?

That said, at least it is being applied without bias. The camera can't tell if the person is one racial group or another and will equally ticket a city councilman's car as a soccer mom's. It appears that the Greek system is "true" corruption where someone is BARRED from doing something without a bribe, and thus the rich can get richer solely with the ability to pay such bribes.

American society has serious issues with corruptions and extortion...get your car towed in San Francisco could set you back $500+ in towing fees/fines and there's no way to contest it and win...and yet if contested the towing company doesn't have to prove you were even parking illegally. Yet, society does nothing because like in your example it provides revenue for the city.

Of course it is corruption. Who and how are those contracts awarded? Public corruption in Greece is from low salaries, and the fact that salaried employees are the only ones paying taxes. And while the photos can be disputed, with the reduced burden of proof and process of traffic court, who is going to appeal to a real court and then pay for attorneys to do so? Someone with friends in town can still get it dismissed easily by the magistrate.

Both are examples of corruption caused by the unwillingness to pay for the government we want or need.

Don't get me wring, as a Greek, it grates on me even more. It literally disgusts me.

But having grown up where I did, here in Hudson County, in NJ, I know that we are not that far removed from a similar system. And even in a system tat is ostensibly legal, I find other issues that I find just as offensive as actual graft, like lotteries, prison labor and red light cameras.

To make up for it, the Governor has pushed through a program of helping municipalities set up red light cameras. They target high traffic, very complex intersections, the kind tat you can easily get stuck in, or need to nose into in order to merge onto a road that is busy during rush hour. They also set them to snap a photo during a rolling stop, so you have to come to a complete stop, behind the crosswalk, before making a turn, a technically correct stop that no one does in low traffic conditions, or late at night.

That somehow reminds me of 'technically correct' income reporting to the IRS or Inland Revenue and how you might feel about it.

From the cited WSJ article:

Quote:

A taxi driver last week offered a business traveler a €50 receipt for a €40 ride, to enable the traveler to overclaim expenses to his company.

The condition was that this receipt be scribbled on a piece of paper and not a printed receipt from his meter, which would result in the payment being registered.

A car to JFK will include a tacit offer of a receipt to your specification. The one I'm looking at right now is from one of the well-known services, handwritten and for USD72. I can't recall a similar offer outside the States.